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Sunday Jun 15, 2008

In a recent proposal to the FCC, the MPAA has signaled its intent to exert greater control over the way in which we interact with its products: movies. Whilst some are crying foul of this, is it really a step in the right or wrong direction?

Consider for a moment that for an adult to attend the movies, in the cinemas, the cost is somewhere between $10 and $20 for a ticket. You end up in a seat that may (or may not) be perfect for watching it (some seats are more equal than others) on the big screen and being able to experience the movie the way it was intended - on the big screen - complete with sound effects, etc. It is my opinion that this is the only venue worth paying such a fee to be entertained by a movie - unless you've got $100,000 to $500,000 to build a dedicated home theatre room (bear in mind you've got to have a room dedicated to do this to do it properly.) That leaves DVDs, often costing $30 to $40 or more, somewhere in the wild. But why do we buy DVDs? To watch a movie at our leisure. I'll add that buying movies is different to buying music because you can enjoy music while you're doing other activities, such as eating, cooking, cleaning, reading, programming, gardenning, etc. Movies you need to make time to watch. This leads me on to the next point.

When we purchase a DVD, we purchase the ability to watch a movie whenever we want, as often as we want. It is my personal experience that most DVDs sit on the shelf or in the cabinet for some large amount of time after we've watched it once or twice before it gets viewed again. I say "most" quite deliberately because there are always some that we watch more than once and when bought for kids, they may be watched many times. But if we are to stop and think about it, do we get our money's worth out of the DVDs we buy? Is the convenience to watch a movie once or twice worth that much? Especially given that today, DVD movies come packed with adverts and banner messages that we must endure to get to the main event - unless we have a device such as Kaleidescape's movie player where we upload movies and can then access them directly (no banners!) - but they're not cheap and have earned the ire of Hollywood.

So convenience is of value to us but now that we have high definition TV content and HDTVs, so is higher quality content. Consider that once a movie is released on DVD, its value to TV stations is diminished and this is the current pattern: cinemas, DVDs then broadcast television. If the last two are reversed and movies are broadcast with high definition content via your cable or satellite broadcaster, then the use of DVRs to store a movie has the potential to make it easy for movie pirates to transfer the content to a DVD (or the Internet) and rob the studios of revenue. Not an attractive thought, for them, so they'd like to disable the DVR recording capability. Good? Bad? Hmmm. If my opportunities to watch a movie are limited to the times at which they're played then yes, it is bad, but if I have video on demand, what's the problem - as long as it is priced reasonably.

And this is the rub. Apple has shown that if you price music at an attractive level, then people have no problems buying it in digital form. We've yet to see that approach for movies and we must consider, what is a movie worth to watch? Does one assume that there will always be more than 1 person watching it thus justifying a price tag of $10 or more to watch it now rather than wait for the DVD or broadcast, free-to-air, tv? But if you wanted to watch it now, wouldn't you just cough up the cash to watch it at the cinemas? (I know that's what I do!)

The downloading of movies from the Internet is attractive for a couple of reasons:

price - it is perceived to be free but in all seriousness, one needs to break up the cost of the internet connection and electricity, not to mention the DVD disc it is burnt to (and perhaps your time) and apportion some of that to find the true cost of a downloaded DVD movie. It might not be $10, but it is definately not $0.

giving it to the man - it gives the little guy a chance to thumb his nose at the big guy (the movie houses)

convenience - quite often the movies in DVD format on the Internet are free of banners and adverts that get in your way of watching the movie, thus the person watching the movie feels like they're watching the movie, rather than being spammed with advertising junk.

Looking at that list, the MPAA and its cohorts should be able to spot something of value: convenience but only if it is priced right.

In May last year, Arstechnica ran a story on
Comcast working on a simultaneous movie release service that would cost between $30 and $50 per film. This is an indication of someone not understanding what the price should be but now that we're 1 year on and the MPAA is talking to the FCC about DVR interaction with content for HDTV, maybe it has been slowly cooking in the background. Hmmm. Some of the comments doing the rounds
on various websites are that if this model works then it might become a preferential venue to cinemas and lead to more cinemas closing. But if that happened, there would be no opening night, no red carpet and no celebrities in public. Significant? Maybe not, but those things do add a certain buzz to movies being released.

At the price of around $0.99 or so per movie, pay per view kind of makes sense - so long as you can pause it while you answer the door to pay for the pizza or visit the bathroom (or some other high priority interrupt such as your parents Email/Internet isn't working and you're their helpdesk.) If you can't do that, well, what's the point of watching it at home? Now if said movie comes with ads and other junk at the front, I'm not likely to be interested but how much extra would I pay to not have them present? Now that's something to think about. Well, after some quick thinking, anywhere from $1 to $2. So now my somewhat old movie, say Star Wars or Lord of the Rings, is going to cost me $2 or $3 to sit down with my friends or girlfriend or whoever for a couple of hours. In doing so, I've saved the movie house fabrication costs of the DVD, printing costs for the DVD, distribution costs of the DVD and possibly promotion and other bits and pieces. You can see now why it is beneficial for Amazon and TiVO to get together in this market.

The key to all of this is the cost to watch the movie - it has to be priced such that I won't think that maybe I should wait for the DVD or some other avenue. While this might upset a lot of people, if movies came as self-destruct entities (they will play from start to end, once), this probably takes care of a large segment of the market. The care that needs to be taken here is to make sure that consumers understand they're buying a right to view the movie, much like they buy a movie ticket, on one occasion, not that they're buying the movie to own/use. The wrinkle in the plan of only viewing it once is the unpredictable reliability of the system that the consumer is using. At $30-$50, a failure of their system that interrupted play and destroyed their one-time token would cause a lot of complaints. At $3, it becomes less of a concern - so long as the failure rate is very low (lets say under 5%.)

So in pursuing the right to restrict DVR usage with HD content on new releases, I think the MPAA is taking some good steps down the road of a sensible business model - so long as they price it right and properly educate people that they're doing something similar to buying a movie ticket but in their own home. If it is then priced appropriately (learn from Apple!), they might just have a winner...